Egypts Economic Reforms: Achievements and Challenges

1
Egypts Economic ReformsAchievements and
Challenges

• Mustapha K. Nabli
• The World Bank
• Presentation for Cairo Investment Forum
• 9-10 December 2006

2
Recent PerformanceStrong Investment and Growth
Revival

• Higher growth rate from 3 p.a. in 2003-04 to
  around 7 now
• Surge in foreign private capital flows both
  portfolio and FDI (almost 6 of GDP in 2005-06)
• Domestic investment has shown signs of dynamism
• Higher exports rise by 37 in FY2005-06, which
  shows enhanced competitiveness
• Some indications that this is having an impact on
  employment, including a reduction in unemployment
  (Ragui study)

3
There is no doubt that the external environment
has contributed to these results

• The most important impact stems form the recent
  expansion especially in the GCC in relation to
  the regional oil boom a number of links are
  producing a positive impact on the Egyptian
  economy ---these effects are significant but much
  weaker than in previous booms
• Higher remittances 14 of GDP in 1979, 3 today
• Significant increase in tourism activity
• Foreign investment flows FDI 7 of GDP in 1979,
  4 in 2005
• Official aid 19 of GDP in 1975, 2 today
• Indirectly encouraging reforms

4
But reforms must have contributed significantly

• On macro-economic management
• 2003-04 exchange rate correction
• eliminated parallel market
• Cumulative 26 trade-weighted nominal
  depreciation in 2000-05, much of it concentrated
  in 2003.
• Significant structural reforms
• The tax rates and administration reforms
• Tariff reduction and customs reform (inspections,
  clearance processes, faster processing using IT)
• Business environment reforms registration and
  licensing and establishment of a one-stop-shop,
• Financial sector reforms
• Privatization of SOEs, including in the banking
  sector infrastructure concessions

5
Evidence of this impact from Investment Climate
Assessments by the World Bank

• Investment climate surveys have shown a
  significant improvement in perceptions in 2006
  compared to 2004 in a number of areas where these
  perceptions were highly negative and considered
  as major impediments to investment (same 738
  firms surveyed in 2004 and 2006)
• Enormous improvement on perceptions on tax rates
  and tax administration
• Significant improvements on perceptions about
• customs administration and trade regulations
• Business licensing and regulation permits
• Legal resolution of disputes
• Access to finance and to land

6
Sustaining and reinforcing growth requires a
virtuous cycle which leads to

• Higher rates of private investment
• Domestic as well as foreign the overall private
  investment to GDP ratio remains relatively low in
  Egypt
• productivity increases
• Vibrant firms that innovate respond quickly and
  flexibly to changing markets
• The investment climate surveys shows little
  improvement in the productivity of firms over the
  last few years

7
Which requires deepening the reform program

• A number of areas are shown by the Investment
  Climate Surveys to require more attention to a
  number of areas on which the government is
  working already
• Improving access to finance and the effectiveness
  of the financial sector to intermediate
  resources, especially to SMEs and services firms
• Reducing barriers to entry, enhancing competition
  
• reducing regulatory uncertainty especially for
  services firms
• Dealing with informal practices of competition
• Developing workforce quality skills
• Combating corruption
• Ensuring that the benefits of the reforms benefit
  the smaller firms as much as the larger ones

8
and requires also enhancing its credibility

• -- Making sure that the direction and
  momentum of reforms are well understood and are
  maintained
• Making sure that announced policies are
  implemented and no reversals take place
• Making sure the benefits of growth are broadly
  shared creating jobs, reducing poverty, more
  generally spreading benefits to the large
  population
• Ensuring that these benefits from the reforms are
  known by the public
• Then the virtuous circle of better
  policiesbetter resultsbetter expectations---bett
  er policies and so on continues to be operating
  for the benefit of the Egyptian people.